India to rebound 5.4% next fiscal after contracting 9.6% in 2020-21: World Bank

India's economy is estimated to contract by 9.6 per cent in the fiscal year 2020-21 and is expected to rebound with a growth of 5.4 per cent in 2021, the World Bank said.

The steep contraction in the current fiscal ending March 31, 2021 reflects a sharp drop in household spending and private investment, the Washington-based institution said in its Global Economic Prospects report.

“In India, the pandemic hit the economy at a time when growth was already decelerating. Growth is expected to recover to 5.4 per cent in 2021, as the rebound from a low base is offset by muted private investment growth given financial sector weaknesses,” the bank said as it forecast that the global economic output would grow by 4.0 per cent in 2021

The informal sector, which accounts for four-fifths of employment, has also been subject to severe income losses during the pandemic. Recent high-frequency data indicate that the services and manufacturing recovery are gaining momentum, the report said.

The third largest Asian economy saw its worst contraction in decades, with the gross domestic product shrinking by a record 23.9 per cent, in the April to June quarter and reflected the severe impact of the coronavirus-induced lockdown.

India’s GDP contracted by 7.5 per cent in the second (July-September) quarter last year. With this, the country’s economy slipped into a technical recessionary phase for the first time ever when its GDP growth was negative or declining for two consecutive quarters or more.

Several global rating agencies have made gloomy predictions for the Indian economy. The Asian Development Bank has said that India’s economy will contract by 9.0 per cent in the 2020-’21 financial year. On September 8, American credit rating agency Fitch Ratings sharply lowered its growth forecast for India, saying that the country’s Gross Domestic Product for the financial year 2020-’21 is expected to contract by 10.5 per cent instead of its earlier estimate of a 5.0 per cent contraction.

For Bangladesh, which had been one of the fastest growing emerging markets and developing economies prior to the pandemic, the growth is projected to decelerate to 2.0 per cent in the 2019-’20 financial year. Similarly, Pakistan is also predicted to witness contraction in growth by 1.5 per cent. The bank added that growth in Pakistan will be slow even in 2020-’21 because of continued fiscal consolidation pressures and service sector weakness.

The World Bank said the economic impact of the pandemic has been somewhat less severe across South Asia but still significant. It pointed out that economies of Maldives, Nepal, and Sri Lanka that depend mainly on tourism have been hit hard.

The international agency pointed out that the South Asia region’s slowdown has been led by India. “Regional economic activity is estimated to have contracted by 6.7 per cent in 2020, led by a deep recession in India, where the economy was already weakened before the pandemic by stress in non-bank financial corporations,” the World Bank said.

South Asia is projected to grow by 3.3 per cent in 2021. The prediction is based on the assumption that Covid-19 vaccine will be distributed across the region from the second half of 2021 and there will be no widespread surge in infection.

— issacjohn@khaleejtimes.com